Bank of England to start selling assets in November

The Bank of England has decided to start asset sales in November, it announced on Tuesday evening as it prepares to unwind the quantitative easing program in which it has accumulated nearly 850 billion pounds sterling of government bonds.

The BoE’s statement, which came after the FT reported that the bank was likely to delay asset sales, signals a change from its previous plans. Whereas previously the BoE intended to sell assets across the full range of maturities, from short to long maturities, it will now only sell bonds with short and medium maturities.

The 30-year gilt, one of Britain’s oldest government bonds, was at the heart of recent fears over the pensions sector, concerns that triggered an emergency buying program by the BoE.

The BoE had previously planned to start bond sales on Oct. 31, itself a delay from the scheduled Oct. 6 date. Sales will now start on November 1, to avoid a conflict with a budget plan to be announced on October 31 by new British Chancellor Jeremy Hunt.

Hunt’s plan will be central to efforts to close a £40billion gap in government accounts. The market reaction is particularly significant due to the negative impact of previous unfunded tax cut plans on the gilt and sterling markets.

“The Bank will continue to monitor market conditions closely and, where appropriate, take them into account in designing its sell trades,” the BoE said in its Tuesday evening statement.

But it added that it expects to proceed with gilt sales in the fourth quarter “at a similar size and frequency to those previously announced,” with any shortfalls made up in 2023 or later.

The bank said sales in the fourth quarter would be short-term gilts, with a residual maturity of between three and seven years, and medium-term gilts, with a residual maturity of up to 20 years.

The Bank has always maintained that sales of government securities — so-called “quantitative tightening” — are not designed as a primary tool of monetary policy and will instead use interest rates as their primary mechanism to bring down inflation.

The UK inflation figure for September will be released on Wednesday and is expected to show prices rising at an annual rate of 10%. The bank is expected to raise interest rates from the current level of 2.25% at its next meeting on November 3.

Market participants expect the rate to rise by at least 0.75 percentage points, although many now maintain the increase will be less than was likely before Hunt reversed most of the tax cuts in the “mini” budget of its predecessor Kwasi Kwarteng from last month.